CHAPTER ONE

1.0     INTRODUCTION

          Thus, this study is intended to examine the effects of financial misstatement or scandals on firm‘s profitability. The study will also cover the control and precautions to financial scandal. The study also examine how best to handle scandals to ensure efficiency and effectiveness of firms.

          The practice of manipulating the financial statement to bolster company’s position is not new

          According to the Association of Certified Fraud Examiners (ACFE) fraud is the deliberate misrepresentation of the financial position of an enterprise, accomplished through the intentional misstatement or omission of amounts or disclosures in the financial statement to deceive financial statement users. Also, financial scandals are fraud called misrepresentation of facts, and its key elements are: -

i.        A material false statement

ii.       Knowledge of its falsity

iii       Reliance on the false statement by the victim, and

iv       Damage suffered by victim

          Financial scandals meet the above criteria. The financial scandal is false because of the degree of manipulation to present a ‘picture’ that is grossly different from the truth. Those behind it, the top management know it is false, but want users (banks investors, public) to rely on it, and there is high risk of financial loss to those who invest in money losing ventures

1.1            STATEMENT OF PROBLEM

          The major problem of financial scandals is its adverse effect on the firm’s profitability and the detriments it holds on the firm’s reputation.

          However, this is evident in the findings carried out on First Bank Nigeria Plc and its directors in the financial decisions of the firm’s financial misstatement carried out by the Securities and Exchange Commission (SEC).

1.2            RESEARCH OBJECTIVES

The main objectives of this proposed research shall be:

1.           To examine the effects of corporate financial statement fraud on firm’s profitability.

2.           To identify reason(s) why such falsification is largely perpetrated by management

3.     To examine how perpetrated scandals are designed to benefit the organization

4.     To find out how financial fraud affects the organization generally.

1.3            RESEARCH QUESTIONS

          For the purpose of this research work, the following research questions will be dealt with.

1        Is there any significant relationship between financial scandals and firm’s profitability?

2.    Has the falsification of financial statement improved the volume of investors?

3.    is there any significant relationship between financial scandals and investor’s turnover?

4.    Are financial scandals aided by the management to the firm’s benefits?

1.4     RESEARCH HYPOTHESIS

          The under listed points are turned into assumptions and in the cause of this research work shall form the field work.

Hypothesis:          H0 - Null Hypothesis

                   Hi - Alternative Hypothesis

1.       H0: Corporate financial scandals have no relationship with firms’ profitability

Hi: There is a relationship between corporate financial scandals and firms profitability.

 2.       Ho: Corporate financial scandals are not aided by management.

H1: Most corporate financial scandals are management aided3.       Ho: Financial scandal does not affect the overall performance of the firm

H1: Financial scandals will always affect the overall performance of the firm4.       H0: Corporate financial misstatement would not lead to high risk of financial loss to investors

H1: corporate financial misstatement would lead to high risk of financial loss to investors

 1.5            SIGNIFICANCE OF THE STUDY

          “The effects of corporate financial scandals on firm’s profitability” as a subject of study is a research study that worth it in all aspects of time wasted in carrying out the work.

          The beneficiaries of this study are traceable to owners of the business, the stakeholders, banks, investors and the government. Thus this work is based on the following premise:

I.To looks at the reasons why management opts to end fraud.

ii        To look at the essence of an auditor in the prevention of fraud in an organization.

iii.      To show the true picture of the organization to interested investors who will like to invest their monies in such.

1.6            SCOPE AND LIMITATION OF STUDY

          This study is intended to examine the effects of financial misstatement or scandals on firm‘s profitability. The study will also cover the control and precautions to financial scandal. The study shall also examine how best to handle scandals to ensure efficiency and effectiveness of firms.

          However, the major constraints of this project work are non availability of sufficient time and material resources required for a more in-depth research from authorities of Cadbury Nigeria plc. In spite of all these constraints, an attempt has been made to maximize the available resources.

1.7     HISTORICAL BACKGROUND OF STUDY

          Cadbury Nigeria Plc, an associate of Cadbury Schweppes - the global leader in the confectionary market, has its history dates back to the 50s. The company began as an offshore of Cadbury Fry Export Limited by a British company.

          In 1960, the company began with small packing operation and grew very rapidly to a point where the factory was then built. In effect, Cadbury Nigeria was formally incorporated in January 1965 and thereafter took over the control of all Cadbury Fry (export) limited assets and activities in Nigeria.

          Cadbury Nigeria went public in 1976, when more of its shares were sold to the public. Cadbury Schweppes holds 46% and many Nigerians own the remaining 53.7%.

          Currently, the company has over 54,000 share holders in her register. Also, the company‘s business is in three major parts; The confectionary - mostly sugar confectionary, the food drinks and food seasoning with an array of 22 popular brands in its portfolio not minding that it started with only two products.

1.8     DEFINITIONS OF TERMS

In cause of this research work, the under listed are common terms used.

1.       FRAUD

          An act of deception deliberately practiced to gain unlawful or unfair advantage, such deception being directed to the detriment of another.

2.       PROFIT

          An excess of revenue over associated expenses for an activity or over a period. It is the surplus of revenue inflow over expenditure out flow on related transactions

3.       FINANCIAL STATEMENTS

          These are balance sheet, profit or loss accounts statement of sources and applications of funds, notes and other statements which collectively are intended to show a true and fair view of financial position.

4.       RATIO

          An index that relates two numbers usually by dividing one number by the other

5.         BALANCE SHEET

This is a firms’ statement of assets and liabilities.

6        INCOME STATEMENT

          Is a record of a company’s receipt and payment.

7        ASSETS

 These are properties on money which is used to finance a business.

8        LIABILITIES

          These are obligations owed to be fulfilled or money borrowed in order to finance the business

9        INVESTORS

          These are individuals or financial institutions that invests in a business concern

10      REVENUE

 Is the totality of income generated by a business concern from varying sources?

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